The Effect of Alternative Data on Real Earnings Management

Jonas Piero Dalmazzo, Accounting PhD Student

In this project I (Dalmazzo) investigate the effect of new type of data available to investors in moderating managers' incentives to engage in a common type of misreporting: real earnings management. This practive consists in taking sub-optimal actions to boost the reported financial performance in order to meet (or beat) market expectations.

In recent years several new sources of data that provide a timely proxy for revenues have become available to (sophisticated) investors. I investigate whether this type of data represents a market provided monitor device that allows investors to "see through" the managers misrepresentation of financial performance. A decrease in ability of managers to take value destructive actions (as aggressive discounting inventory) to beat market expectations can have efficiency implications.  These can provide a signal, which is provided by third party data providers and not due to regulation, that can re-align the incentives of managers and investors.